California lawmakers and Governor Arnold Schwarzenegger agreed on “the framework” to close a $19 billion deficit, ending an impasse that pushed the most-populous U.S. state near insolvency for a second year running.

Schwarzenegger and legislative leaders will hammer out the details of the agreement when they meet again in Sacramento on Sept. 27, said a Schwarzenegger spokesman, Aaron McLear.

California, the biggest U.S. issuer of municipal debt, has been operating without a budget since its fiscal year began July 1. Schwarzenegger, a Republican approaching the end of his term, and Democrats who lead the Legislature, disagreed on spending cuts and whether to raise taxes to fill the gap. The impasse led state Controller John Chiang to warn that he may have to begin paying some bills with IOUs as soon as next month. Once a budget is signed, California Treasurer Bill Lockyer plans to borrow as much as $10 billion using short-term notes.

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